Financial regulation:
Finance Watch – a lobby to break the lobbies

23 February 2012

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The Brussels financial lobby seems all powerful. Since the Lehman crash of 2008, it has stalled all attempts to reform the financial market in Europe. But things should be changing now: Europe has hired an anti-lobby.

Joost Mulder knows all the tricks. For five years this clever Dutchman worked the Brussels legislative machine on behalf of financial institutions. Playing a political game in a network made up of the European Commission, the European Parliament and the Council of Ministers of the 27 governments was his profession. Speaking four languages and knowing everyone, the 31-year-old glided smoothly through the bazaar of Brussels policymakers – he was a model lobbyist.

Sometimes he and his colleagues choked off legislative initiatives. Or else, using his contacts among officials at EU headquarters, he got hold of controversial regulations still at the first-draft stage just in time to organise a stream of objections from many seemingly independent sources. If there was merely an undesirable paragraph to be blocked at the Commission or in the European Parliament, it was simply a matter of putting together a blocking minority in the Council. “Lobbyists," Joost Mulder says, “like to tell clients – ‘Give me a 10,000 euro fee and I’ll make sure your position becomes an issue in the Council.’”

But things are different now. Mulder has turned a page. When last year financial lobbyists went so far as to “blackmail individual governments by threatening to withdraw capital and jobs, it was the final straw,” he says. “Making finance serve society” is now on his business card as head of the Public Affairs department of an organisation called Finance Watch.

Charlie McCreevy – a captive Commissioner

There too he has been hired as a lobbyist – only now he lobbies for a firm that is unique in the world of Brussels politics. At Finance Watch, experienced financial professionals aim to take on the might of the financial lobbyists and steer that power back to their own purposes: mobilising financial services for productive ends.

It is a brand-new, never-done-before experiment. This new lobby group to curb the financial markets has been ordered duly and properly – by the legislators themselves.

What started it off was a phenomenon seen only after the financial crisis broke in autumn 2008. To tackle the root causes of the crisis, some experienced professionals were needed. But there were none present who were truly independent of the financial industry. At every level, the debate was set by bankers, fund managers and other financial experts.

At the same time, it emerged that the European Commission and its Internal Market Directorate General had been thoroughly infiltrated by the financial industry. How far this went was uncovered by the Alliance for Lobbying Transparency and Ethics Regulation (ALTER EU), whose autumn 2009 report entitled A Captive Commission, described how then Acting Commissioner Charlie McCreevy had de facto outsourced law-making to vested interests. Half of Europe was outraged at the EU authorities relying on such one-sided information. In practice, though, no consequences flowed from that outrage.

The MEPs paid him out of their own pockets

Enter French Green MEP Pascal Canfin and his German colleague Sven Giegold. In June 2010 they got an unusual initiative off the ground, formulating a “Call for Finance Watch”. Within days they had won the support of 22 members of the Economic Committee, cutting across all the internal factions. Doers and shakers with financial expertise were wanted. One Thierry Philipponnat fit the bill.

With 20 years of experience as a banker and exchange manager, Philipponnat had left his well-paid job in 2006 and started all over again. At first he worked in providing microcredit in poor countries, and then at Amnesty.

The MEPs paid him out of their own pockets for six months of ground-laying work, and Philipponnat was able to deliver. In a month-long slog through seven European countries he persuaded 38 organisations, from Oxfam to the European Trade Union Confederation, to sign on as founding members and raised around half a million euros in start-up capital from private foundations. At the same time Parliament pushed for funding from the EU budget. This year, 1.25 million euros have been earmarked, and the new Internal Market Commissioner Michel Barnier has signalled that Finance Watch will get most of it.

And so Philipponnat, six months after the inaugural meeting, is today “Secretary General” of an expert and advocacy agency, appointed by the European Parliament, funded by the taxpayer and supported by organisations whose membership totals 100 million.

But is it worth the effort? Can this small band bring anything at all to bear against the brute force of the organised financial lobby? About 700 professionals have been sent to Brussels alone by banks and other financial corporations to nudge EU legislation in the desired direction, and their influence spreads far and wide.

“It’s the same work I did before”

How tricky the task is was revealed last year in the dispute over the trade in unsecured credit default swaps on government bonds, the so-called “naked credit default swaps” (CDS). These swaps allows funds to speculate on decline in states’ creditworthiness, without spending a lot of their own money. Because the CDS rates are regarded as a measure of default risk, they can thus drastically exacerbate a potential debt crisis or even bring one on.

That explains why in March 2011 the European Parliament called for this trade to be banned altogether. Hedge fund and banking associations promptly protested, rolling out a strategy that Philipponnat calls the “details trap”. The story put about by the lobby via the Financial Times newspaper was that MEPs failed to grasp the mechanisms of the trade. If the ban were to be enforced, “the market for government bonds would become less liquid and the end costs for borrowers would increase” – an argument that could hardly be refuted by laymen.

Market expert Philipponnat, however, had no trouble in seeing the deception. His report explained the actual context, and it was well received – so well that the Commissioner himself even made Philipponnat’s argument his own, and the European Parliamentary plenary upheld the ban. As it was put to a vote in October at the Council of Finance Ministers, however, some ministers suddenly insisted on regulatory exceptions. “Clearly, that was a result of good lobbying,” says Mulder, with a respectful nod at his former colleagues. The law has “a gigantic loophole.”

Chief lobbyist Mulder is still full of confidence. “Actually it’s the same work I did before,” he says. “But now I sleep better.”

Pascal Canfin, foe of finance

"To end the arrogance of finance." Such is, according to French weekly Télérama, the goal of Finance Watch, a non-governmental organisation. To find out more, the magazine interviewed MEP Pascal Canfin, who created Finance Watch.

"I'm proud to have created Finance Watch," says French environmentalist Pascal Canfin, explaining that -

... a counter-lobby to the unbelievable financial lobby was absolutely necessary. But the NGO had to be 'trans-partisan', because civil society does not respond to the call of a party, especially a minority party like The Greens. You have to remember that the European Parliament, unlike the French National Assembly, is elected using proportional representation, there is no automatic majority or minority. Each bill finds its own majority. For my part, I negotiate like crazy, then, if it is globally positive, I vote for it.

Canfin thinks that the Member States wasted an opportunity in 2008 and 2009 to reform the banking sector, when "the banks were on their knees". Now he thinks that "change in Europe depends on a double change of power, in 2012 in France and in Germany in 2013".